A capital gain is income derived from the sale or transfer of a
capital asset. A capital asset includes house property, shares,
paintings, etc. A capital gain is the difference between the sale
consideration and the cost of the acquisition of the asset, plus the
cost of improvement thereto.
Short-term & long-term gains
Capital gains could be long-term or short-term . Capital assets are classified as long-term or short-term with reference to the period of holding of such assets.
In case a house property is held for not more than 36 months from the date of its transfer, the gain arising from the same would be treated as a short-term capital gain. Such a gain would be liable to tax at normal income-tax rates applicable to the tax payer. Therefore, for an individual tax payer in the highest tax slab rate, the short-term capital gain would be taxable @ 30%, plus education cess.
However, if such a property is held for more than 36 months and sold subsequently, the gain arising from there would be treated as a long-term capital gain and subject to tax @20%, plus education cess.
Such a long-term capital gain would also enjoy the benefit of indexation, ie, the cost of such a house property would be increased with reference to the cost inflation index.
The I-T Act, provides tax breaks for long-term capital gains invested in specified avenues.
Short-term & long-term gains
Capital gains could be long-term or short-term . Capital assets are classified as long-term or short-term with reference to the period of holding of such assets.
In case a house property is held for not more than 36 months from the date of its transfer, the gain arising from the same would be treated as a short-term capital gain. Such a gain would be liable to tax at normal income-tax rates applicable to the tax payer. Therefore, for an individual tax payer in the highest tax slab rate, the short-term capital gain would be taxable @ 30%, plus education cess.
However, if such a property is held for more than 36 months and sold subsequently, the gain arising from there would be treated as a long-term capital gain and subject to tax @20%, plus education cess.
Such a long-term capital gain would also enjoy the benefit of indexation, ie, the cost of such a house property would be increased with reference to the cost inflation index.
The I-T Act, provides tax breaks for long-term capital gains invested in specified avenues.
Investment in another house
An individual may invest the long-term capital gains arising from the sale of a residential house to buy another house .
The new property should be bought within a year before or two years after the date of such transfer.
Also, such long-term capital gains could be invested to construct a new house property within three years from the date of sale.
In case the individual does not want to invest immediately and wants to buy/construct the other house later, he also has an option of keeping the funds in a specified capital gains scheme with a bank from which the funds could be specifically utilised for acquiring the other house, subject to conditions.
The new property should be bought within a year before or two years after the date of such transfer.
Also, such long-term capital gains could be invested to construct a new house property within three years from the date of sale.
In case the individual does not want to invest immediately and wants to buy/construct the other house later, he also has an option of keeping the funds in a specified capital gains scheme with a bank from which the funds could be specifically utilised for acquiring the other house, subject to conditions.
Investment into specified bonds
An individual can also invest long-term capital gains within a
period of six months after the date of transfer in certain specified
options, which include bonds issued by NHAI, Rural Electrification
Corporation, etc.
In respect to these bonds, the investment limit is restricted up to Rs 50 lakh during any financial year.
In respect to these bonds, the investment limit is restricted up to Rs 50 lakh during any financial year.
